Why chasing the maximum Social Security benefit of $4,194 may not help you as much
SSocial Security seniors do not all receive the same amount of money each month. On the contrary, your monthly benefit will depend on different factors. These include:
- The age at which you take out benefits
- What your salaries were like during your 35 most profitable years in the labor market
In 2022, the highest monthly Social Security benefit you can collect is $4,194 per month. At first glance, this may seem like a lot of money. But in reality, if you qualify for this benefit, it may not do you much good on its own.
Why a monthly benefit of $4,194 might be missing out on you
To benefit from the maximum monthly benefit Social Security will pay, you must have earned a very high salary for at least 35 years. Specifically, your salary will need to match the annual salary cap for Social Security purposes.
If you have a higher income, you may have noticed that you don’t pay social security taxes on all of your income. Rather, there is a salary limit for tax purposes that changes from year to year. Right now it’s $147,000. Last year it was $142,800.
If you are able to get the maximum monthly Social Security benefit, that equates to an annual income of about $50,000. But as a general rule, retirees are told to try to replace 70-80% of their annual income to maintain a decent standard of living. So if you fixate on the maximum Social Security benefit and don’t make an effort to build solid savings, you may find yourself strapped for cash in retirement, even if you’re in line for a good 50 $000 per year in benefits.
Save for your future
While $50,000 from Social Security each year can help you enjoy a comfortable retirement if you’re an average earner, if you’re a higher earner, you’ll likely need more income than that to maintain the style. life to which you are accustomed. And this is where your personal savings come into play.
If you have a higher income, it may be possible to save $1,000 per month in your 401(k) plan over a period of 35 years. Invest that money with an average annual return of 8%, a few percentage points below the stock market average, and you’ll end up with a 401(k) ending balance of around $2 million.
Then, if you withdraw from your savings at an annual rate of 3%, which is actually a bit conservative, you will have an annual income of $60,000. Combine that with your $50,000 a year from Social Security, and you should be in a pretty solid position to fully enjoy your retirement.
While it certainly doesn’t hurt to try to get as much money out of Social Security as possible, even the most generous benefit the program will pay may not be enough to get you through your senior years. Instead of relying solely on Social Security to fund your retirement, save it independently to ensure you don’t run into financial worries later in life.
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